Friday, 25 January 2013

17 companies said the way in which changes to the subsidies were handled was disastrous for their businesses

The cuts [to the tariff rate], and the impression they gave of a policy that could change at very little notice, put off potential customers. Prior to the cuts announcement, the solar panel industry had been enjoying a boom in the UK, with more than 100,000 new installations before the changes were announced in October 2011. But the number of new installations dropped by 90% in the wake of the government's sudden changes.

Before the cuts, householders were paid for their solar generation at 43.3p per kWh of electricity generated, but in October 2011 the government said this would be cut to 21p, reducing returns from about 7% to 4%. Under the original plans, the lower rate would have applied to installations from 12 December that year, but the courts subsequently forced the government to honour the original tariff for anyone installing before 3 March, 2012 because the amount of notice given was too short.

The government said the changes were necessary as the cost of solar panels had come down since the original tariff was introduced, with the result that households were making excessive returns. The cost of the feed-in tariff is met through additions to energy bills, and ministers wanted to cap this at £860m, while the runaway rate of installation in 2011 threatened to cost far more. Many in the industry accepted that the tariff should be cut, but were angered by the government's failure to give enough notice.

Squeal piggies, squeal! Those subsidies were so ludicrously high, it must have been clear to anybody with half a brain that the good times wouldn't last.

The irony is that although businesses which installed solar panels could claim the feed-in-tarriffs as well, the income therefrom was liable to VAT and corporation tax as normal and the rental value of the panels (estimated at 5% of installation cost) was added to the rental value of the premises for Business Rates purposes.

So by and large, the value of the subsidy was wiped out, and to the extent that there were any net subsidies to be collected, they accrued to the owner of the building anyway. If a tenant wanted to install solar, the landlord would bump up the rent to soak up the value of the subsidy, if any, and under English land law, if the tenant moves out, those panels belong to the building and hence the landlord.